Charters see risk, reward in U.S.-Cuba thaw

Charter flights from the U.S. to Havana are increasing with eased travel restrictions to the Communist island.
THE ASSOCIATED PRESS

TAMPA — Charter travel companies get some of the credit for moving the United States toward normalization with Cuba by exploiting small steps taken up to now toward relaxing the travel embargo.

In the process, they have helped open the island nation to a limited few but ultimately influential American travelers.

Now, these companies that have been at the vanguard of change — several of them operate from Tampa — risk becoming victims of their own success.

Executive orders from President Barack Obama to begin negotiations with Cuba include opening flights via U.S.-based commercial airlines, banned since the embargo was imposed in the early 1960s.

The airlines are expected to enter the market in the next year or two, according to people in the Cuba travel industry, bringing with them the lower fares associated with owning your own airplanes and the huge marketing advantage that comes from name recognition.

An estimated half the cost of a charter flight ticket to Cuba today goes toward the cost of leasing airplanes.

“Conventional wisdom says commercial lines will be able to do it less expensively so it would make sense the charters will sunset,” said Tom Popper, president of New York-based Insight Cuba, which has been taking American tour groups to Cuba since 2000 on charter flights. “But we have to wait and see before we make assumptions.”

Tampa International Airport is a hub for two of the charter companies: Miami-based ABC Charters and Cuba Charter Services, based in Cypress, California.

Both admit they expect commercial airlines to take a significant chunk, as much as 80 percent, of the Cuba travel business.

But they’re not throwing in the towel yet. They’re banking on normalization of relations with Cuba to expand travel to such a degree that 20 percent of the market in the market in the future will equate to even more business than they have now.

“We’re talking about a 20 percent share of the market in a year or two,” said Michael Zuccato, general manager of Cuba Travel Services. “We expect many more people will be going to Cuba at that point.”

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Traveling to Cuba has been arduous because each traveler required a specific license from the U.S. government, issued only after case-by-case review.

Now it is easier because another of Obama’s executive orders allows any U.S. citizen to visit the island nation under a general license as long they fall under one of 12 broad categories of travel, including education and support for the Cuban people.

The charter companies already are seeing more business because of this.

Clearwater-based Travel2Cuba.com, which books flights and hotels for travelers to Cuba, had to move to a new office twice the size of the old one to accommodate the added employees, said president Ivar Fiskaa.

Peter Quinter of Miami, head of the international trade-law group for Orlando-based Gray Robinson, said all the charter companies he has spoken with have also detailed better ticket sales.

“They are busier than they have ever been,” he said. “They are making a lot of money.”

Tessie Aral, president of ABC Charters, expects it to continue to grow.

“I’d estimate Americans who want to visit Cuba will increase 15 to 25 percent in the coming year,” Aral said. “And that is on top of those Cuban-Americans living in the U.S. who may want to visit more often now that relations are getting better or what could happen if the travel ban is lifted.”

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One development that may influence travel volume is the introduction in the U.S. Senate of The Freedom to Travel to Cuba Act. The measure would lift the travel ban outright, allowing U.S. citizens to book stays in Cuba’s beach resorts and visit as tourists, for pursuits such as golfing and scuba diving.

Similar efforts by lawmakers have failed in the past, said Zuccato of Cuba Charter Services, but he is confident this year will be different.

“I cannot recall ever having such positive support from elected officials from the local, state and federal level,” he said. “If this happens, there will be plenty of business to go around.”

Still, with five commercial airlines already expressing interest since Obama’s historic announcement in December — American, Southwest, United, JetBlue and Delta — some analysts expect to see casualties in the charter industry.

“Undoubtedly some, perhaps many charter companies, will go out of business,” said Jose Pertierra, a Washington, D.C.-based lawyer who deals with U.S.-Cuba relations. “However, there will always be business for those charter companies that have substantial experience and competence in organizing travel to Cuba.”

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Experience in all facets of travel to Cuba will keep their companies alive and help them thrive, say Zuccato of Cuba Charter Services and Aral with ABC Charters.

Each has been in the business for almost two decades.

Besides operating charter flights, ABC and Cuba Charter Services double as licensed travel service providers, authorized by the U.S. Department of the Treasury to book hotels and ground transportation in Cuba.

The two charter companies also help travelers in obtaining a visa and have relationships with established tour guides.

“Then if you book a commercial flight and hotel through Joe Blow travel agency with no knowledge of Cuba, you don’t know what you’ll get,” Aral said. “ABC knows Cuba. When you book through ABC you know we will take care of you in every step of your trip to Cuba. I think those going to Cuba will realize it will be easier to do everything through us — from flights to hotels.”

Popper of Insight Cuba said such a business plan seems to imply a refocusing among charter companies toward full service tour group operators.

He thinks that can work for them.

“They’ll have to pivot in the industry to remain viable,” he said. “And that seems to be the way.”

Tampa native and Naples resident John Parke Wright said he will continue to use veteran charter companies and recommend that his friends and business associates do so as their interest in Cuba expands with normalization.

Wright travels to Cuba for agricultural business and humanitarian missions.

“You have to use someone you trust,” he said. “And trust comes with experience.”

Collectively, they are widely credited with paving the way for Obama’s initiative.

“They provided the American public a tremendous service,” Wright said. “They should be commended.”

U.S. citizens, he said, traveled to Cuba and returned with the realization that the communist nation poses no threat to U.S. national security and that American capitalism could help Cuba’s citizens.

They shared their views and helped sway public opinion.

Those travelers could never have made it to Cuba if charter companies had not taken the financial risk inherent in a business so tied to political agendas.

“They paved the way,” Popper said.

He traces the beginnings of the shift to the late 1970s when President Jimmy Carter allowed Cuban-Americans to visit family.

The charter industry grew under fellow Democrat Bill Clinton, who created so-called “people-to-people licenses” that allow Americans not of Cuban descent to visit the island nation so long as their purpose was learning about heritage and history and not simply tourism.

Republican President George W. Bush eliminated the people-to-people program, restricted family trips to once every three years, and narrowed the definition of who qualified to grandparents, parents and siblings.

“It was tough in those years for us,” Aral said. “I stuck with it because while this is a business, it is also personal for me. It’s about freedom. I don’t believe Uncle Sam should be allowed to dictate where we travel to.”

Then in 2009, Democrat Obama announced Cuban-Americans could visit families there as often as they like – opening travel back up to cousins, nephews, nephews, aunts and uncles. In 2011, Obama reinstated the people-to-people program.

That’s also the year Tampa International Airport began offering charter flights to Cuba, and the number of passengers has increased each year since: 41,526 in 2012, 45,595 in 2013 and 61,408 in 2014.

Still, that’s not enough for some charter companies.

Xael left the Tampa market in 2013. Island Travel & Tours did so a year later.

Both still operate charter flights out of Miami.

Island Travel has since filed a lawsuit against Cuba Travel Services claiming the company cut ticket prices too much, in violation of antitrust laws.

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Now, the two charters still in business in Tampa are reaping the benefits of perseverance.

But for how long?

“The charters should continue to get all that business for at least the next year,” Miami lawyer Quinter said.

By then, he expects to see commercial airlines landing in Cuba.

“There is more going on than what we see in the U.S.,” said Frank Reno, president of Tampa-based Cuba Executive Travel, who organizes people-to-people trips. “We are only half the equation. Cuba is the other half. The U.S., Cuba and the airlines have a lot to negotiate.”

The negotiations could include an agreement that allows Cuban planes to land in the U.S.

Currently, because more than $4 billion in civil judgments have been issued against Cuba by U.S. courts on behalf of American citizens, any Cuban plane that does land here can be seized to satisfy them.

The same could happen to settle the as much as $9 billion in property claims made by those who had land or businesses nationalized by the Cuban government in the years after Fidel Castro’s rise to power.

The commercial airlines may also need time to negotiate cheaper landing fees.

Today, a U.S. plane that pays $275 for landing fees at Tampa’s airport pays up to $24,000 in Havana.

And then there is Cuba’s tourist infrastructure.

In fact, the issue isn’t how many commercial flights the U.S. airlines can fly but how much tourism the small island can handle, said Fiskaa with Travel2Cuba.com.

Cuba doesn’t have enough hotel rooms to accommodate a big influx of Americans on top of tourists already visiting from elsewhere, Fiskaa said.

Until it’s able to ramp up, he added, Cuba may limit access to one commercial airline and ask established charter companies to pare flights slightly.

Even as excitement builds over smoother travel to Cuba, Reno of Cuba Executive Travel warns that the island nation may not prove a top tourist attraction in the long run.

Right now, it is forbidden fruit, he said. But who knows how it will fare when it loses that distinction.

Commercial airlines may find other Caribbean markets are still more lucrative, he said. Charter companies leasing planes for Cuban travel may prove to be the enduring business model.

“I’m old enough to remember the dot-com bubble and the real estate bubble,” Reno said. “Well this may be the Cuba bubble. I’m excited about the new business but I’ll wait and see how this all progresses before I am confident this bubble won’t burst.”